The semiconductor industry is revving up after a challenging 2023. Chip stocks suffered their seventh downturn since 1990 with sales down 9.4% to $520 billion. But green shoots are emerging. A stronger second and third quarter last year tempered the slump, and 2024 global chip sales are now forecast at $588 billion. That’s a 13% annual gain and 2.5% above 2022’s record $574 billion.
This cyclical upswing is being turbocharged by secular drivers like generative artificial intelligence (AI), self-driving vehicles and lightning-fast 5G connectivity. At the heart of this technological revolution are semiconductor materials stocks manufacturing critical chip components and design tools. These pivotal players are unleashing exponential silicon and software innovations.
While booms and busts are par for the course, secular demand from generative AI to advanced computing positions select industry players for spectacular long-term gains.
Trailblazing firms are steering revolutionary chip technologies across the value chain. Not only are they pioneering cutting-edge capabilities but these semiconductor materials stocks also boast robust financials and strategic initiatives to ride the next secular growth wave. For value investors, these semi industry powerhouses could be prime picks to capitalize on the future today.
Taiwan Semiconductor Manufacturing (TSM)
As the world’s largest and most advanced semiconductor foundry, Taiwan Semiconductor Manufacturing (NYSE:TSM) is a premier semiconductor materials stock. TSM pioneered the dedicated foundry model, enabling fabless chip design and unleashing innovation across the industry. The company has built the largest semiconductor ecosystem, with about 85% of global chip startup prototypes passing through its fabs.
Remarkably, TSM produced a staggering 11,895 different products using 288 process technologies in 2023, serving hundreds of customers with over 16 million 12-inch equivalent wafers. Additionally, its market share in semiconductors, excluding memory, is 28%, fueled by nurturing customer success.
TSM is also accelerating its global footprint due to commercial pressures and encouragement from other countries. Thus, the company will build a second $20 billion fab in Japan by 2027 alongside an existing facility. As a result, it will create 3,400 skilled jobs with government support. TSM also announced that it will be building a factory in Dresden, Germany, which would be its first facility in Europe.
Financially, TSM is the semiconductor foundry leader, delivering a 17.7% revenue compounded annual growth rate (CAGR) and 17.2% earnings CAGR since going public in 1994. Looking ahead from 2021 to 2026, TSM targets 15% to 20% revenue CAGR, 53% gross margins, and 25% returns on equity. Furthermore, it boasts an impregnable balance sheet with the semiconductor industry’s highest credit ratings.
As a capital-intensive semiconductor materials stock, TSM is committed to sustainable cash dividends, paying $9.35 billion in 2023 after starting dividends in 2004 without ever reducing per-share payouts.
Synopsys (SNPS)
Synopsys (NASDAQ:SNPS) is a leading semiconductor materials stock at the heart of innovations powering the era of Smart Everything. That includes smart cars, intelligent machines and ultra-fast connectivity. The company provides the world’s most advanced technologies for chip design, verification, IP integration and software security testing. Synopsys enables customers to innovate from silicon to software for next-gen products.
Financially, Synopsys delivered record results in fiscal 2023. Quarterly revenue hit $1.6 billion, up 25% year-over-year, with full-year revenue of $5.8 billion rising 15%. GAAP EPS was $7.92 for the year, while non-GAAP EPS of $11.19 exceeded guidance on robust demand for semiconductor R&D despite macro uncertainties.
The company expanded its backlog to $8.6 billion. Synopsys is driving semiconductor innovation through strategic moves. It announced Synopsys.ai Copilot, integrating Microsoft (NASDAQ:MSFT) Azure OpenAI to bring generative AI capabilities to accelerate chip design. It was also honored as a TSM Open Innovation Partner of the Year for 2023, spanning digital, analog, multi-die systems, RF design and IP contributions across TSM’s advanced nodes. As a semiconductor materials powerhouse, Synopsys is revolutionizing smart silicon and secure software.
Photronics (PLAB)
Photronics (NASDAQ:PLAB) is a leading global manufacturer of photomasks, high-precision quartz plates containing microscopic circuit images that are key to integrated (IC) and flat panel display (FPD) production. With over 50 years of experience, Photronics is a trusted semiconductor materials supplier, operating 11 factories worldwide.
Financially, Photronics delivered record revenue of $892.1 million in fiscal 2023, up 8% year-over-year for its sixth straight year of top-line gains. GAAP net income hit $125.5 million or $2.03 per diluted share, while non-GAAP net income was $126 million or $2.04 per diluted share. IC revenue rose 10% to $651.3 million, and FPD revenue increased 4% to $240.8 million on robust design-driven photomask demand.
In Q1 fiscal 2024, revenue grew 2% annually to $216.3 million despite weaker seasonal patterns. High-end IC revenue rose sequentially and annually, led by 22 nanometer (nm) and 28nm nodes. While operating margins contracted sequentially on higher expenses, cash from operations remained robust at $41.5 million. As a critical semiconductor materials player, Photronics’ advanced photomasks enable cutting-edge chip capabilities.
On the date of publication, Andrea van Schalkwyk did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
